diff --git "a/Germany/19.Hannover Rück_$33.67 B_FInancial Service/2017/results.txt" "b/Germany/19.Hannover Rück_$33.67 B_FInancial Service/2017/results.txt" new file mode 100644--- /dev/null +++ "b/Germany/19.Hannover Rück_$33.67 B_FInancial Service/2017/results.txt" @@ -0,0 +1,151122 @@ +Mortality +Policyholders' surplus +2015 +2014 +2013 +20121 +2011 +2010 +2009 +2008 +2007 +2006 +(200) +in EUR million +0 +400 +600 +514.4 +606.0 +800 +748.9 +733.7 +721.7 +1,000 +895.5 +849.6 +985.6 +200 +1,200 +103* +10,239.5 10,267.3 +in EUR +Book value per share +2015 +2014 +2013 +20121 +2011 +2010 +2009 +2008 +2007 +2006 +12,000 +0 +4,000 +4,708.4 +6,000 +5,621.6 +5,295.1 +4,878.4 +8,000 +7,338.2 +6,987.0 +8,767.9 +8,947.2 +10,000 +2,000 +104* +1,150.7 +in EUR million +Longevity +• +Risk Solutions +Financial Solutions +Life & Health reinsurance +Structured Reinsurance and +Insurance-Linked Securities +Catastrophe XL (Cat XL) +Worldwide Treaty Reinsurance +• +Global Reinsurance +Facultative Reinsurance +Market and Direct Business +• +• +Credit, Surety and Political Risks +• +The market environment in property and casualty reinsurance remained intensely competitive in the +year under review with the associated rate reductions. The key driver here is the fact that natural +catastrophe losses were below the expected levels over the past four years, as a consequence of which +reinsurers posted generally good results. This prompted an increased inflow of capacity into the mar- +kets both from traditional reinsurers as well as in the form of so-called alternative capital from pension +funds, hedge funds and other investors. The supply of reinsurance capacity thus rose considerably +more sharply than demand. +Thanks to our very good market position Hannover Re nevertheless achieved a business development +in the year under review with which we can be thoroughly satisfied. Our long-standing, stable customer +relationships and our good ratings were particularly crucial in enabling us to write business selectively +and only at conditions that satisfied our margin requirements. Despite this, we boosted the premium +volume by eight percent - adjusted for exchange rate effects - to more than EUR 9 billion. What is +particularly gratifying is that the rise in premium income was accompanied by an even more significant +increase in the underwriting result to EUR 432 million. The combined ratio improved from 94.7 percent +to 94.4 percent. The quality of the underwriting result is also borne out by the fact that the growth was +not generated at the expense of the confidence level of our loss reserves. Quite the contrary: the confi- +dence level actually showed further improvement. +The major loss expenditure of EUR 573 million was higher than in 2014, when it came in at +EUR 426 million. Nevertheless, this figure was still well below our budgeted level of EUR 690 million. +The largest single loss was the devastating series of explosions at the port of the Chinese city of Tianjin, +costing EUR 111 million. The operating profit (EBIT) in property and casualty reinsurance grew by +almost 13 percent to an exceptionally pleasing EUR 1.3 billion. +We improved the operating result (EBIT) in life and health reinsurance by some 54 percent to +EUR 405 million. Our financial solutions business, in particular, played a vital part in this gratifying +development. The very good underlying profitability here was bolstered by positive non-recurring +effects. Our mortality and morbidity business, on the other hand, incurred negative one-off effects, such +as those recorded at our branch in France. In terms of the underwriting result, these effects - which +each ran into the mid-double-digit million euro range - largely offset one another; the posted under- +writing result is therefore a good reflection of the underlying profitability in the year under review. +The special effect of roughly EUR 40 million recognised in investment income in relation to an early +termination fee for a cancelled contract will not, however, be so readily repeated in the coming years. +Hannover Re | Annual Report 2015 +3 +For our investors +US mortality business, and especially a block of business that we had acquired in 2009, again per- +formed unsatisfactorily. Still, it is pleasing to report that we were able to implement measures in this +area that should lead to improved profitability. We substantially reduced the annual collateralisation +costs while at the same time raising the reinsurance rates for a number of very poorly performing +treaties. This should improve the profit outlook for this segment by an amount in the mid-double-digit +millions of euros. +We moved forward on our expansionary course in life and health reinsurance in the financial year just +ended. Gross premium adjusted for exchange rate effects rose by around ten percent to EUR 7.7 billion. +As already mentioned, this growth went hand-in-hand with an even stronger increase in the +earnings figures. +Given that the general business environment is by no means straightforward, we are also highly satis- +fied with the development of our investment income. The portfolio of assets under own management +grew to more than EUR 39 billion, thanks not least to a continued positive cash flow. This is all the +more remarkable because the valuation reserves fell again - on the back of higher risk premiums on +corporate bonds - and we paid a substantially increased dividend of EUR 513 million. Despite the drop +in interest rates, we boosted the investment income from assets under own management by a size- +able 16 percent to EUR 1.3 billion. The key contributory factors here are our increased exposure to real +estate as well as income from private equity investments. The net return on assets under own manage- +ment stood at 3.4 percent and thus came in comfortably better than planned. Including interest on +funds withheld and contract deposits, net investment income grew to a very pleasing EUR 1.7 billion, +equivalent to growth of 13 percent. +United Kingdom, Ireland, London +102* +Morbidity +An overview +Group net income (loss) +2015 +2014 +2013 +20121 +2011 +2010 +2009 +2008 +2007 +2006 +0 +108 +5,000 +8,258.9 +10,000 +13,774.2 13,963.4 14,361.8 +11,428.7 12,096.1 +10,274.8 +9,289.3 +15,000 +17,068.7- +20,000 +101* +in EUR million +Gross premium +8,120.9 +As I mentioned at the outset, your company has entered the current year in a very healthy financial +state. In view of the intense competition prevailing in both property & casualty and life & health +reinsurance, our primary emphasis for 2016 is on achieving a result that meets our financial targets. +Growing our premium volume is less of a priority. With this in mind, it is our expectation that gross +premium income will remain stable or may contract slightly. On the other hand, despite the fiercely +competitive state of the property and casualty reinsurance market, the combined ratio is expected to +again come in below our strategic target of 96 percent. This is subject to the proviso that major losses +do not significantly exceed our increased budget of EUR 825 million. In life and health reinsurance the +underlying trend of improving results is expected to be sustained in the current year. As far as the profit +expectation is concerned, it must of course be borne in mind that we cannot anticipate another positive +one-off effect. Turning to the investments, we expect to see further growth in our asset holdings. This +should enable us to keep the investment income broadly stable in absolute terms, despite a lower +expected return of 2.9 percent. +80 +62.61 +250 +List of graphs, tables and charts* +16 +Our strategy +245 +Glossary +10 +The Hannover Re share +242 +of the Hannover Re Group abroad +6 +Executive Board of Hannover Rück SE +Financial calendar +Branch offices and subsidiaries +242 +Further information +2 +For our investors +Contents +The rating agencies most relevant to the insurance industry have awarded both +Hannover Re and E+S Rück very good financial strength ratings: Standard & Poor's +"AA-" (Very Strong) and A.M. Best "A+" (Superior). +We transact all lines of property & casualty and life & health reinsurance and are +present on all continents with roughly 2,500 staff. Established in 1966, the Hannover +Re Group today has a network of more than 100 subsidiaries, branches and represent- +ative offices worldwide. The German business of the Hannover Re Group is transacted +by our subsidiary E+S Rück. +Hannover Re, with gross premium of more than EUR 17 billion, is the third-largest +reinsurer in the world. +About us +as well as EUR 2.60 plus special dividend of EUR 0.40 for 2012 and EUR 1.80 plus special dividend of EUR 0.50 for 2007 +Proposed dividend +Dividend of EUR 3.25 plus special dividend of EUR 1.50 for 2015; EUR 3.00 plus special dividend of EUR 1.25 for 2014 +3 +Letter from the Chairman of the Executive Board 2 +2 +253 +Combined management report +I would now like to explore in greater detail the developments in our business groups of +Property & Casualty and Life & Health reinsurance and on the investments side. +I would also like to mention at this juncture how particularly pleased we were in the context of the new +solvency regulations (Solvency II) to receive approval from the Federal Financial Supervisory Authority +for the use of our internal capital model to calculate the quantitative solvency for the Hannover Re +Group as early as the third quarter of the year under review. In the fourth quarter the same was then +also true of the individual companies Hannover Rück SE, E+S Rück and Hannover Re Ireland. We are +better able to map the risk structure of our business using our internal model rather than the standard +model and hence we can efficiently implement the capital requirements according to Solvency II. +Both on the basis of its capitalisation under the newly implemented solvency regime (Solvency II) and +in the assessment of the rating agencies, Hannover Re is comfortably capitalised. With this in mind, +we had already distributed a special dividend to you last year with an eye to capital management +considerations. In view of the gratifying development of our business, the Executive Board and Super- +visory Board intend to propose a further increase in both the basic dividend and the additional special +dividend to the Annual General Meeting in May 2016. Consequently, it is envisaged that the total +distribution should be raised to EUR 4.75 per share, split into a dividend of EUR 3.25 per share and +a special dividend of EUR 1.50 per share. The increase in the basic dividend reflects your company's +stronger profitability. +Hannover Re | Annual Report 2015 +2 +As we consider the highly satisfactory figures more closely, I would like to highlight the increase of +around 17 percent in Group net income to EUR 1.15 billion. This is the first time that we can report a +net profit for the Group in excess of EUR 1 billion. It is also pleasing to note that despite an intensely +competitive market we enlarged our gross premium volume to EUR 17 billion. This is equivalent to +currency-adjusted growth of some nine percent. Similarly, your company's shareholders' equity rose by +almost seven percent to EUR 8 billion. The average shareholders' equity, the basis on which we calcu- +late the return on equity, actually increased by more than 16 percent. The return on equity nevertheless +remained stable at a very pleasing 14.7 percent. This shows that we have succeeded in boosting the +profitability of your company in step with the growth in shareholders' equity. +As our valued shareholders, you can therefore rest assured that your company has established a very +good basis for continued success in the coming years, which will be shaped by a challenging general +business climate. Our foundation is the successful implementation of our strategic approach geared to +"long-term success in a competitive business”. +The 2015 financial year was an exceptionally successful one for your company. This is reflected firstly +in the record profit that we can report for what is now the fourth consecutive time. Even more signifi- +cant, however, is the fact that in 2015 we were able to substantially strengthen the platform that we +have put in place for achieving our financial goals going forward. In property and casualty reinsurance, +for example, we again appreciably increased the confidence level of our loss reserves despite the diffi- +cult market environment. This should help us to post continued good underwriting results even in the +challenging years to come. In life and health reinsurance we further boosted the value of new business +and, what is more, we improved the profitability of the existing portfolio by taking targeted actions. We +have thus cemented a robust foundation for further increasing the underlying profitability of our life +and health reinsurance business. When it comes to our investments, we took purposeful structural steps +that should enable us to keep the return on investment broadly stable in absolute terms. This was sup- +ported by further considerable growth in the portfolio of assets under own management, facilitated by +a sharply higher operating cash flow compared to the previous year. +Ladies and Gentlemen, +Dear Shareholders, +Ulrich Wallin, +Chairman of the +Executive Board +* Graphs, tables and charts are numbered and listed +on page 250 et seq. +Contact information +241 +* +238 +145 +Supervisory Board of Hannover Rück SE +Report by the Supervisory Board +Supervisory Board +Notes +135 +Annual financial statements +254 +255 +Imprint +22 +238 +66.90 +1 Adjusted pursuant to IAS 8 +2014 +4.752,3 +105* +in EUR +Dividend +2015 +2014 +2013 +20121 +2011 +2010 +2009 +2008 +5 +2007 +0 +20 +23.47 +24.03 +27.77 +30.80 +40 +37.39 +41.22 +48.83 +50.02 +60 +2006 +2015 +4.252 +3.00² +2013 +20121 +2011 +2010 +2009 +2008 +2007 +2006 +0 +1.80 +1 +3.25 +4 +3.00 +-0.50 +2 +1.60 +0.40 +2.10 +2.30 +2.10 +2.302 +3 +1.50 +1.25 +3.00 +2.60 +4 +• +All in all, we are again expecting to post very good business results for your company in 2016. Provided +major losses remain within the bounds of expectations and as long as there are no exceptional distor- +tions on the investment side, we anticipate Group net income in the order of EUR 950 million. +Investments (excl. funds with- +636.0 +1,731.6 +681.7 +2,233.0 +2,237.8 +1,986.5 +-25.0% +1,489.9 +Hybrid capital +641.6 +702.2 ++1.0% +709.1 +held by ceding companies) +Non-controlling interests +6,032.5 +5,888.4 +7,550.8 ++6.9% +8,068.3 +Rück SE +shareholders of Hannover +Equity attributable to +7,338.2 +8,947.2 +8,767.9 +10,239.5 +4,970.6 ++0.3% +39,346.9 +36,228.0 +41.22 +50.02 +48.83 +62.61 ++6.9% +66.90 +Book value per share in EUR +5.02 +7.04 +7.43 +8.17 +Hannover Re | Annual Report 2015 ++8.6% +9.54 +Earnings per share +Share +49,867.0 +54,811.7 +53,915.5 +60,457.6 ++4.6% +63,214.9 +Total assets +28,341.2 +31,874.4 +31,875.2 +(basic and diluted) in EUR +10,267.3 +Policyholders' surplus +Balance sheet ++17.5% +14,593.0 +Net premium earned +12,096.1 +13,774.2 +13,963.4 +14,361.8 ++18.8% +17,068.7 +Gross written premium +Results +year +12,423.1 +Figures in EUR million +20121 +2013 +2014 ++/- +previous +2015 +106 +Key figures +hannover re +Annual Report 2015 +15 +digerent +somewhat +2011 +12,226.7 +12,279.2 +10,751.5 +606.0 +849.6 +895.5 +985.6 ++16.7% +1,150.7 +Group net income +841.4 +1,393.9 +1,229.1 +1,466.4 ++19.7% +1,755.2 +Operating profit (EBIT) +1,384.0 +1,655.7 +1,411.8 +1,471.8 ++13.1% +1,665.1 +Net investment income +(535.8) +(96.9) +(83.0) +(23.6) +93.8 +Net underwriting result +Dividend +572.82 ++16.7% +3.25 +1.502,3 +Life & Health Reinsurance +United Kingdom/Ireland, +North America, Northern, +Eastern and Central Europe +6 +Hannover Re | Annual Report 2015 +Aviation +• +• Marine +Specialty Lines Worldwide +• Continental Europe +• North America +Target Markets +Dividend per share in EUR +Hannover Re Group +Strategic business groups +A complete list of our shareholdings is provided on page 160 et seq. of the notes. +The addresses of the Hannover Re Group's branch offices and subsidiaries abroad +are to be found in the section "Further information" on page 242 et seq. +107 +The Group worldwide +7 Operating result (EBIT)/net premium earned +Excluding effects from ModCo derivatives and inflation swaps +6 +Hannover Re Group's net share for natural catastrophes and other major losses in excess of EUR 10 million gross as a percentage +of net premium earned (until 31 December 2011: in excess of EUR 5 million gross) +5 +Including expenses on funds withheld and contract deposits +4 +Dr. Klaus Miller +Western and Southern Europe +Longevity Solutions +Africa, Asia, Australia/New +Zealand, Latin America, +• +I would like to take this opportunity to thank you, our valued shareholders, most sincerely for your +trust - also on behalf of my colleagues on the Executive Board. I would also like to express my appreci- +ation to our employees for their very good and reliable work. Going forward, as in the past, you can rest +assured that we shall do everything in our power to safeguard Hannover Re's successful development. +It is and will remain our goal to increase the value of your company on a sustainable basis. +Yours sincerely, +似 +Ulrich Wallin +Chairman of the Executive Board +Hannover Re | Annual Report 2015 +5 +For our investors +Executive Board of Hannover Rück SE +hannover re +hany +but +3 Dividend of EUR 3.25 plus special dividend of EUR 1.50 for 2015, EUR 3.00 plus special dividend of EUR 1.25 for 2014 and +EUR 2.60 plus special dividend of EUR 0.40 for 2012 +Roland Vogel +Investment and Collateral Management +Facility Management +Ulrich Wallin +Chairman +Business Opportunity Management +Compliance +Controlling +Human Resources Management +Internal Auditing +Risk Management +Corporate Development +Corporate Communications +Claude Chèvre +Life & Health Reinsurance +Finance and Accounting +Information Technology +2 Proposed dividend +Property & Casualty reinsurance +12.8% +94.7% +94.4% +Combined ratio (property and +casualty reinsurance) 4 +Ratios +4,621.9 +7,110.4 +7,522.8 +9,041.2 ++40.9% +12,741.1 +at year-end +1 Adjusted pursuant to IAS 8 +94.9% +38.325 +2.10 +2.60+0.403 +3.00 +62.38 +74.97 +3.00+1.253 +253.3 +361.8 +361.8 +512.5 ++11.8% ++11.8% ++40.9% +105.65 +Share price at year-end in EUR +58.96 +95.8% +Market capitalisation +15.4% +104.3% +15.0% +14.7% +14.7% +Return on equity (after tax) +7.8% +11.4% +4.1% +3.4% +10.1% +11.8% +12.0% +EBIT margin +3.3% +4.1% +ceding companies) 6 +3.5% +7.1% +Retention +87.0% +6.1% +87.6% +8.4% +89.0% +Large losses as percentage of +net premium earned (proper- +ty and casualty reinsurance) 5 +16.5% +91.2% +Return on investment +(excl. funds withheld by +7.0% +89.8% +382.7 +Within the overall framework of operational risks we consider, +in particular, business process risks, compliance risks, risks +associated with sales channels and outsourcing of functions, +fraud risks, personnel risks, information technology risks/infor- +mation security risks and business interruption risks. +Business process +risks are associated with the risk of deficient +or flawed internal processes, which can arise as a consequence +of an inadequate process organisation. We have defined criteria +to evaluate the maturity level of the material processes, e.g. for +the reserving process. This enables us to ensure that process +risks are monitored. In cooperation with the process partici- +pants, the process owner evaluates the risks of the metaprocess +and develops measures for known, existing risks. Data quality +is a highly critical success factor in this regard, especially in +risk management, because – among other things - the validity +of the results delivered by the internal model depends primar- +ily on the data provided. +Compliance risks are associated with the risk of breaches of +standards and requirements, non-compliance with which may +entail lawsuits or official proceedings with not inconsidera- +ble detrimental implications for the business activities of the +Hannover Re Group. Regulatory compliance, compliance with +the company's Code of Conduct, data privacy and compliance +with anti-trust and competition laws have been defined as +issues of particular relevance to compliance. The compliance +risk also extends to tax and legal risks. Responsibilities within +the compliance organisation are regulated and documented +Group-wide and interfaces with risk management have been +put in place. The set of tools is rounded off with regular compli- +ance training programmes. For further information on compli- +ance-related topics, including for example lawsuits, contingent +liabilities and commitments, please see Section 8.6 "Lawsuits" +and Section 8.7 "Contingent liabilities and commitments" on +page 232 et seq. +In selected market niches we transact primary insurance busi- +ness that complements our reinsurance activities. In so doing, +just as on the reinsurance side, we always work together with +partners from the primary sector - such as insurance brokers +and underwriting agencies. This gives rise to risks associ- +ated with such sales channels, although these are minimised +through the careful selection of agencies, mandatory under- +writing guidelines and regular checks. +The proper functioning and competitiveness of the Hannover +Re Group can be attributed in large measure to the expertise +and dedication of our staff. In order to minimise personnel +risks, we pay special attention to the skills, experience and +motivation of our employees and foster these qualities through +outstanding personnel development and leadership activities. +Regular employee surveys and the monitoring of turnover rates +ensure that such risks are identified at an early stage and scope +to take the necessary actions is created. +Fraud risks refer to the risk of intentional violations of laws +or regulations by members of staff (internal fraud) and/or by +externals (external fraud). This risk is reduced by the internal +control system as well as by the audits conducted by Group +Auditing on a Group-wide and line-independent basis. +Hannover Re | Annual Report 2015 +93 +Information technology risks and information security risks +arise, inter alia, out of the risk of the inadequate integrity, +confidentiality or availability of systems and information. By +way of example, losses and damage resulting from the unau- +thorised passing on of confidential information, the malicious +overloading of important IT systems or from computer viruses +are material to the Hannover Re Group. Given the broad +spec- +trum of such risks, a diverse range of steering and monitoring +measures and organisational standards, including for exam- +ple the requirement to conclude confidentiality agreements +with service providers, have been put in place. In addition, +our employees are made more conscious of such security +risks through practically oriented tools provided online in the +intranet, by way of training opportunities and through a staff +information campaign. +31.12.2014 +Risks associated with the outsourcing of functions can result +from such outsourcing of functions, services and/or organisa- +tional units to third parties outside Hannover Re. Mandatory +rules have been put in place to limit this risk; among other +things, they stipulate that a risk analysis is to be performed +prior to a material outsourcing. In the context of this analysis a +check is carried out to determine, inter alia, what specific risks +exist and whether outsourcing can even occur in the first place. +M69 +Operational risks refer to the risk of losses occurring because +of the inadequacy or failure of internal processes or as a result +of events triggered by employee-related, system-induced or +external factors. In contrast to underwriting risks (e.g. the +reserve risk), which we enter into in a deliberate and con- +trolled manner in the context of our business activities, oper- +ational risks are an indivisible part of our business activities. +The focus is therefore on risk avoidance and risk minimisation. +As a derivation from our strategic principle "We manage risks +actively", we act according to the following principles in rela- +tion to operational risks: +431.1 +30.9.2015 +Operational risk +in EUR million +Required risk capital¹ for operational risks +With the aid of the Self-Assessment for Operational Risks we +determine the maturity level of our operational risk manage- +ment system and define action fields for improvements. The +assessment is carried out, for example, by assessing the matu- +rity level of the respective risk management function or of the +risk monitoring and reporting. The system enables us, among +other things, to prioritise operational risks and is used (for +internal purposes) to calculate the capital commitment in our +internal model. +5. We manage within defined limits and create +transparency through measurements. +measures. +4. We strive for appropriate risk reduction through our +3. We consider events and scenarios that cover the entire +spectrum of operational risks. +sustainably. +2. We manage operational risks proactively and +When it comes to reducing business interruption risks, the +paramount objective is the quickest possible return to nor- +mal operations after a crisis, for example through implemen- +tation of existing contingency plans. Guided by internationally +accepted standards, we have defined the key framework con- +ditions and among other measures - we have assembled a +crisis team to serve as a temporary body in the event of an +emergency. The system is complemented by regular exercises +and tests. A leaflet is available setting out the correct behav- +iour in the event of a business interruption; this condenses in +compact form the key information that all employees need to +know (e.g. information channels in a crisis situation). Regular +risk reporting to the Risk Committee and the Executive Board +has also been put in place. +1 Required risk capital at a confidence level of 99.5% +Other risks +Hannover Re | Annual Report 2015 +The hallmark of emerging risks is that the content of such risks +cannot as yet be reliably assessed - especially on the under- +writing side with respect to our treaty portfolio. Such risks +evolve gradually from weak signals to unmistakable tenden- +cies. It is therefore vital to detect these risks at an early stage +and then determine their relevance. For the purpose of early +detection we have developed an efficient process that spans +divisions and lines of business and we have ensured its link- +age to risk management. Operational implementation is han- +dled by an expert working group assembled specially for this +task. The analyses performed by this working group are used +Group-wide in order to pinpoint any necessary measures (e. g. +the implementation of contractual exclusions or the develop- +ment of new reinsurance products). By way of example, risks +Operational risks +Hannover Re | Annual Report 2015 +96 +If a business idea is translated into reality and a new reinsur- +ance product results, the normal procedure - provided the +criteria defined for this purpose by Risk Management are appli- +cable is to work through the so-called new product process. +This process is supported by Risk Management at Hannover Re. +The process is always worked through if a contractual commit- +ment is to be entered into in a form not previously used by Han- +nover Re or if the exposure substantially exceeds the existing +scope of coverage. If this is the case, all material internal and +external influencing factors are examined beforehand by Risk +Management (e. g. implications for the overall risk profile or the +risk strategy) and an assessment is made. Risk Management +ensures that before it can be used or sold a new reinsurance +product must be approved by the Executive Board. +Cyber attacks on critical systems are becoming increas- +ingly common. They can cause considerable financial +losses and also damage corporate reputations. Not +only that, they can severely hamper private and public +life, especially if critical infrastructures are impacted - +such as the health, transportation/traffic and energy +sectors. In such instances supply bottlenecks with last- +ing effects as well as major disruptions to public safety +may ensue. In a networked world the repercussions of +cyber attacks are intensifying because the volume of +data stored around the world is constantly growing - +and in this context it is not only one's own technical +infrastructure that needs to be secured. On the con- +trary, the trend towards cloud computing is increas- +ingly shifting the focus to third-party infrastructures +and the associated network connection. As part of our +holistic risk and opportunity management activities, +we are also tackling the question of what new insur- +ance products can be developed in order to protect +against the relevant threats. Our presence in this mar- +ket thus goes as far back as 2007 and we have already +developed corresponding products. +Cyber risks +The networking of the innovative minds involved gives rise to +close links with other projects, working groups and bodies, +such as with the working group on “Emerging Risks und Sci- +entific Affairs" in regard to emerging risks and opportunities +(see page 94 "Other risks”). This working group carries out +qualitative assessments of emerging risks. As a result, however, +not only are the potential risks analysed but also any available +business opportunities. In the year under review, for example, +issues such as “Global shifts in disease patterns due to climate +change", "Supply chain risks", "Safe foods and their availa- +bility", "Costs of preventive medical screening in the United +States", "Drones", "Claims resulting from traumatic sports inju- +ries" and "Cyber risks" were explored by the working group. +Many companies would like to bring new solutions to market +that generate more energy and are more efficient. Given the +innovative nature of the technology, however, customers often +lack confidence in such solutions. By protecting the output per- +formance of energy-creating or energy-increasing technologies +we help to boost customer confidence and enable providers to +set themselves apart from other market players. +Energy Output Performance Protect (EOPP) +This insurance solution enables providers of energy efficiency +solutions to take out protection in the event that the promised +energy savings fail to materialise. In this case the company in +question receives a compensatory payment from the primary +insurer. For its part, Hannover Re covers the energy saving +warranties of its primary insurance clients. By building trust, +the greater planning reliability created by the product makes +it possible for many activities needed as part of Germany's +turnaround in energy policy to be undertaken in the first place. +Based on its considerable success, as reflected not only in +the premium generated but also in its singling out for energy +efficiency awards (the enercity-Energie-Effizienzpreis and the +Energieeffizienzpreis Perpetuum from the German Industry +Initiative for Energy Efficiency (DENEFF)), this product is now +available Europe-wide and is being modified for other fields +of application. +(Energie Einspar Protect = EEP) +Energy Savings Protect +95 +Of material importance to our company in the category of other +risks are primarily emerging risks, strategic risks, reputational +risks and liquidity risks. +Hannover Re | Annual Report 2015 +Weather insurance +Not only that, Hannover Re has set up a stand-alone organisa- +tional unit for “Business Opportunity Management” within the +Chief Executive Officer's scope of responsibility. This service +unit deals systematically with ideas and business opportuni- +ties and it concentrates its activities on generating additional +premium volume with profit potential. To this end, promising +business opportunities are translated into business models +with the support of project teams and tested on the market +by the partner b2b Protect. New solutions that meet with a +positive response are subsequently launched on the market +in cooperation with primary insurance partners. The goal is +to generate new business and thereby sustainably promote +Hannover Re's profitable growth. Several of the more than 100 +ideas contributed by the global network since the unit was set +up have been realised as innovative insurance solutions and +successfully handed over to line responsibility; they are now +being sold on the market by primary insurers. The following +solutions may be cited by way of example: +Key elements in Hannover Re's opportunity manage- +ment include its various market-specific innovations in the +Life & Health and Property & Casualty reinsurance business +groups (see the Forecast on page 126 et seq.). What is more, +innovative and creative ideas are developed by our employ- +ees. Those that can be successfully translated into additional +profitable premium volume are financially rewarded. Further +elements are the working group on “Emerging Risks and Sci- +entific Affairs" and the “Future Radar" initiative. +Speed is one of the qualities used to measure a successful +knowledge transfer. Quick solutions and staying one step +ahead of the competition is the name of the game. Hannover +Re searches systematically for new business opportunities +in order to generate sustainable growth and strengthen the +company's profitable development. With a view to identifying +opportunities and successfully translating ideas into business, +Hannover Re adopts a number of closely related approaches +in order to achieve holistic opportunity and risk management. +Of significance here is the interplay without overlaps of the +various functions within opportunity and risk management, +which is ensured by defined interfaces. +Opportunity report +- +The liquidity risk refers to the risk of being unable to meet our +financial obligations when they become due. The liquidity risk +consists of the refinancing risk (necessary cash could not be +obtained or could only be obtained at increased costs) and the +market liquidity risk (financial market transactions could only +be completed at a poorer price than expected due to a lack +of market liquidity). Core elements of the liquidity manage- +ment of our investments are, in the first place, management +of the maturity structure of our investments on the basis of the +planned payment profiles arising out of our technical liabilities +and, secondly, regular liquidity planning as well as the asset +structure of the investments. Above and beyond the foreseeable +payments, unexpected and exceptionally large payments may +pose a threat to liquidity. In reinsurance business, however, +significant events (major losses) are normally paid out after a +lead time that can be reliably planned. As part of our liquid- +ity management we have nevertheless defined asset holdings +that have proven to be highly liquid – even in times of finan- +cial stress such as the 2008 financial crisis. Our holdings of +unrestricted German, UK and US government bonds as well as +cash during the year under review were larger than possible +disbursements for assumed extreme events, which means that +our liquidity is assured even in the unlikely case of financial +crises coinciding with an extreme event that needs to be paid +out quickly. The liquid asset reserve stood at EUR 5.4 billion as +at the balance sheet date. In addition, we manage the liquidity +of the portfolio by checking on each trading day the liquidity +of the instruments contained therein. These measures serve +to effectively reduce the liquidity risk. +Combined management report +24 +94 +Reputational risks refer to the risk that the trust put in our +company by clients, shareholders, employees or the public at +large may be damaged. This risk has the potential to jeopard- +ise the business foundation of the Hannover Re Group. A good +corporate reputation is therefore an indispensable prerequisite +for our core business as a reinsurer. Reputational risks may +arise out of all business activities conducted by the Hannover +Re Group. Reputational damage may be caused, inter alia, by +a data mishap that becomes public knowledge or financial dif- +ficulties on account of an underwriting risk. In addition to the +risk identification methods already described, we use a num- +ber of different techniques for risk minimisation, such as our +defined communication channels (e. g. Crisis Communication +Guideline), a professional approach to corporate communica- +tions, tried and tested processes for specific crisis scenarios +as well as our established Code of Conduct. A specific Group- +wide guideline on the management of reputational risks was +compiled in the 2015 financial year. +Strategic risks derive from a possible imbalance between the +corporate strategy of the Hannover Re Group and the con- +stantly changing general business environment. Such an +imbalance might be caused, for example, by incorrect stra- +tegic policy decisions, a failure to consistently implement the +defined strategies and business plans or an incorrect alloca- +tion of resources. We therefore regularly review our corporate +strategy in a multi-step procedure and adjust our processes +and the resulting guidelines as and when required. We have +defined performance criteria and indicators for operational +implementation of the strategic principles and objectives; these +are authoritative when it comes to determining fulfilment of +the various targets. With the "Strategy Cockpit" the Executive +Board and responsible managers have at their disposal a strat- +egy tool that assists them with the planning, elaboration and +management of strategic objectives and measures and safe- +guards their overall perspective on the company and its stra- +tegic risks. The process for the management of strategic risks +continues to be assessed annually as part of the monitoring of +business process risks. In addition, a Group-wide guideline on +the management of strategic risks was drawn up in 2015. Fur- +ther details on the topic of strategy are provided in the section +entitled "Our strategy" on page 16 et seq. +associated with possible climate change are analysed by this +working group. Global warming would affect not only natural +perils, but also human health, the world economy, the agricul- +tural sector etc. These problematic issues may also have impli- +cations for our treaty portfolio - in the form of not just risks +but also opportunities, e. g. through increased demand for rein- +surance products. Further examples of emerging risks include +nanotechnology, shortage of resources and supply chain risks. +The goal is to offer a heavily weather-dependent clientele +industry-specific solutions to protect against fluctuations in +the weather. Particularly strong interest in this product is cur- +rently being shown by companies operating in areas such as +construction, energy trading, event management, amusement +parks and tourism. +Combined management report +1. We integrate operational risk management into the +company and its culture. +22 ++246.7 +Fixed-income securities +Yield increase +50 basis points +-770,1 +-673,8 +Yield increase +100 basis points ++246.7 +-1.506,3 +Yield decrease -50 basis points +Yield decrease -100 basis points ++793,3 ++692,4 ++1.618,4 ++1.411,9 +Real estate +-1.317,9 +Real estate market values -10% +Real estate market values +10% ++123.4 +-246.7 +Scenarios for changes in the fair value of material asset classes +Scenario +in EUR million +Equity securities and private +equity +Share prices -10% +Share prices -20% ++123.4 +Share prices +10% +M65 +Portfolio change on +a fair value basis +Change in equity +before tax +-123.4 +-123.4 +-246.7 +Share prices +20% +-175.8 ++175.8 +-93.2 ++38.4 +Further significant risk management tools - along with the +various stress tests used to estimate the loss potential under +extreme market conditions - include sensitivity and duration +analyses and our asset/liability management (ALM). The inter- +nal capital model provides us with quantitative support for +the investment strategy as well as a broad diversity of VaR +calculations. In addition, tactical duration ranges are in place, +within which the portfolio can be positioned opportunistically +according to market expectations. The parameters for these +ranges are directly linked to our calculated risk-bearing capac- +ity. Further information on the risk concentrations of our invest- +ments can be obtained from the tables on the rating structure +of fixed-income securities as well as on the currencies in which +investments are held. Please see our comments in Section 6.1 +of the notes entitled "Investments under own management" +on page 176 et seq. +in EUR +million +in % +in EUR +million +in % +in EUR +million +in % +in % +in EUR +million +74.0 +7,681.5 +64.4 +4,167.6 +1.6 +202.0 +AAA +Covered bonds/ +asset-backed securities +M66 +Corporate bonds +Share price risks derive from the possibility of unfavourable +changes in the value of equities, equity derivatives or equity +index derivatives in our portfolio. In addition to such assets +held to date on only a very modest scale as part of strategic +participations, we acted on market opportunities in the course +of the year to rebuild a broadly diversified equity portfolio. +Please see our comments in Section 6.1 of the notes entitled +"Investments under own management" on page 176 et seq. +The portfolio of fixed-income securities is exposed to the +interest rate risk. Declining market yields lead to increases +and rising market yields to decreases in the fair value of the +fixed-income securities portfolio. The credit spread risk should +also be mentioned. The credit spread refers to the interest rate +differential between a risk-entailing bond and risk-free bond +Hannover Re | Annual Report 2015 +with the same maturity. Changes in these risk premiums, which +are observable on the market, result – analogously to changes +in pure market yields - in changes in the fair values of the cor- +responding securities. +Currency risks are especially relevant if there is a currency +imbalance between the technical liabilities and the assets. +Through extensive matching of currency distributions on the +assets and liabilities side, we reduce this risk on the basis +of the individual balance sheets within the Group. The short- +term Value at Risk therefore does not include quantification +of the currency risk. We regularly compare the liabilities per +currency with the covering assets and optimise the currency +coverage by regrouping assets. In so doing, we make allowance +for collateral conditions such as different accounting require- +ments. Remaining currency surpluses are systematically quan- +tified and monitored within the scope of economic modelling. +A detailed presentation of the currency spread of our invest- +ments is provided in Section 6.1 of the notes entitled "Invest- +ments under own management" on page 184 et seq. +Real estate risks result from the possibility of unfavourable +changes in the value of real estate held either directly or +through fund units. They may be caused by a deterioration in +particular qualities of a property or by a general downslide in +market values. Real estate risks continued to grow in impor- +tance for our portfolio owing to our ongoing involvement in +this sector. We spread these risks through broadly diversified +investments in high-quality markets of Germany, Europe as +a whole and the United States; each investment is preceded +by detailed analyses of the property, manager and market +concerned. +89 +Combined management report +We use derivative financial instruments only to the extent +needed to hedge risks. The primary purpose of such financial +instruments is to hedge against potentially adverse develop- +ments on capital markets. At the start of the year under review +we had still held inflation swaps to hedge part of the infla- +tion risks associated with the loss reserves in our technical +account. Some of these inflation swaps reached their maturity +date during the year and were not renewed. The remaining +instruments were terminated, as a result of which our inflation +protection is now ensured exclusively by means of bonds with +inflation-linked coupons and redemption amounts. In addition, +as in the previous year, a portion of our cash flows from the +insurance business as well as currency risks was hedged using +forward exchange transactions because currency matching +could not be efficiently achieved. Hannover Re holds further +derivative financial instruments to hedge interest rate risks +from loans taken out to finance real estate. In addition, Han- +nover Re has taken out hedges in the form of equity swaps to +hedge price risks in connection with the stock appreciation +rights granted in the first quarter of 2014 under the Share +Award Plan. These are intended to neutralise changes in the +fair values of the awarded stock appreciation rights. Contracts +are concluded with reliable counterparties and for the most +Rating structure of our fixed-income securities¹ +Rating classes +Government bonds +part collateralised on a daily basis so as to avoid credit risks +associated with the use of such transactions. The remaining +exposures are controlled according to the restrictive parame- +ters set out in the investment guidelines. Our investments entail +credit risks that arise out of the risk of a failure to pay (inter- +est and/or capital repayment) or a change in the credit status +(rating downgrade) of issuers of securities. We attach equally +vital importance to exceptionally broad diversification as we +do to credit assessment conducted on the basis of the qual- +ity criteria set out in the investment guidelines. We me +measure +credit risks in the first place using the standard market credit +risk components, especially the probability of default and the +potential amount of loss - making allowance for any collateral +and the ranking of the individual instruments depending on +their effect in each case. +We then assess the credit risk first on the level of individual +securities (issues) and in subsequent steps on a combined basis +on the issuer level. In order to limit the risk of counterparty +default we set various limits on the issuer and issue level as +well as in the form of dedicated rating quotas. A comprehen- +sive system of risk reporting ensures timely reporting to the +functions entrusted with risk management. +Securities issued +by semi-governmental +entities² +Stress tests are conducted in order to be able to map extreme +scenarios as well as normal market scenarios for the purpose of +calculating the Value at Risk. In this context, the loss potentials +for fair values and shareholders' equity (before tax) are simu- +lated on the basis of already occurred or notional extreme events. +67.7 +Hannover Re | Annual Report 2015 +Q3 2015 +Equity risk² +1,109.5 +804.3 +Real estate risk +436.9 +404.4 +930.6 +Diversfication +(2,108.6) +3,903.1 +3,521.6 +2 +Market risk +1 Required risk capital with a confidence level of 99.5% +Including private equity +(2,057.3) +With a view to preserving the value of our assets under own +management, we constantly monitor adherence to a trigger +mechanism based on a clearly defined traffic light system +that is applied across all portfolios. This system defines clear +thresholds and escalation channels for the cumulative fluctu- +ations in fair value and realised gains/losses on investments +since the beginning of the year. These are unambiguously +defined in conformity with our risk appetite and trigger spec- +ified information and escalation channels if a corresponding +fair value development is overstepped. +Hannover Re | Annual Report 2015 +851.9 +Combined management report +of individual markets. By monitoring compliance with these +underwriting guidelines we minimise the risk of an inability to +pay or of deterioration in the financial status of cedants. Reg- +ular reviews and holistic analyses (e.g. with an eye to lapse +risks) are carried out with respect to new business activities +and the assumption of international portfolios. The actuarial +reports and documentation required by local regulators ensure +that regular scrutiny also takes place on the level of the sub- +sidiaries. The interest rate risk, which in the primary sector +is important in life business owing to the guarantees that are +given, is of only minimal relevance to our company thanks to +the design of our reinsurance treaties. We have confidence +in the entrepreneurial abilities of our underwriters and grant +them the most extensive possible powers. In our decentralised +organisation we manage risks where they arise using a con- +sistent Group-wide approach in order to obtain an overall view +of the risks in life and health reinsurance. Our global under- +writing guidelines provide underwriters with an appropriate +framework for this purpose. The risks arising out of life and +health reinsurance are reflected in the internal capital model. +Market risks +Faced with a challenging capital market climate, particularly +high importance attaches to preserving the value of assets +under own management and the stability of the return. Han- +nover Re's portfolio is therefore guided by the principles of a +balanced risk/return profile and broad diversification. Based +on a risk-averse asset mix, the investments reflect both the +currencies and durations of our liabilities. Market price risks +include equity risks, interest rate risks, currency risks, real +estate risks, spread risks and credit risks. Our portfolio cur- +rently consists in large part of fixed-income securities, and +hence credit and spread risks account for the bulk of the mar- +ket risk. We minimise interest rate and currency risks through +the greatest possible matching of payments from fixed-income +securities with the projected future payment obligations from +our insurance contracts. Market risks derive from the invest- +ments managed by Hannover Re itself and from investment +risks of ceding companies that we assume in connection with +insurance contracts. The following table shows the risk capi- +tal with a confidence level of 99.5% for the market risks from +investments under own and third-party management. +Required risk capital' for market risks +M62 +Foreign exchange risk +in EUR million +31.12.2014 +Credit and spread risk +2,777.4 +2,639.0 +Interest rate risk +761.9 +30.9.2015 +Interest rate and spread markets, in particular, saw very mixed +movements across the most important investment currencies +over the course of the period under review. In this context +the escalation levels of the trigger system were reached on +occasion during the year (cf. chart on page 88). Key factors in +this development were increases in the general level of inter- +est rates, especially in USD and GBP, as well as the general +increase in credit spreads. Even our conservatively oriented +and broadly diversified investment portfolio was unable to +divorce itself from the resulting declines in fair value. Specif- +ically, our portfolio of fixed-income bonds gave back some of +the fair value gains recorded in previous years, in part owing +to yield increases but also entirely normally due to the passage +of time. Fair value changes from investments in equities and +private equity as well as the renewed drop in interest rates in +the EUR portfolio were positive factors here. +The predefined discussion and analysis mechanisms initiated on +reaching the escalation levels in each case arrived at the assess- +ment that the general market movements would not have any +intolerable or strategy-changing implications for our portfolio or +our capitalisation. Consequently, we did not make any changes +to the investment allocation as a result of our trigger system. +Hannover Re | Annual Report 2015 +M63 +The short-term loss probability measured as the "Value at Risk” +(VAR) is another vital tool used for monitoring and managing +market price risks. It is calculated on the basis of historical +data, e. g. the volatility of the securities positions under own +management and the correlation between these risks. As part +of these calculations the decline in the fair value of our port- +folio is simulated with a certain probability and within a cer- +tain period. The VaR of the Hannover Re Group determined in +accordance with these principles specifies the decrease in the +fair value of our securities portfolio under own management +that with a probability of 95% will not be exceeded within +ten trading days. A multi-factor model is used to calculate the +VaR indicators for the Hannover Re Group. It is based on time +series of selected representative market parameters (equity +prices, yield curves, spread curves, exchange rates, commod- +ity prices and macro-economic variables). All asset positions +are mapped on the level of individual positions within the mul- +ti-factor model; residual risks (e. g. market price risks that are +not directly explained by the multi-factor model) can be deter- +mined through back-calculation and are incorporated into the +overall calculation. The model takes into account interest rate +risks, credit and spread risks, systematic and specific equity +risks, commodity risks and option-specific risks. Against the +backdrop of what was still a difficult capital market environ- +ment, the volatilities of fixed-income assets, in particular, and +hence the market price risks increased in the year under review +relative to the previous year. Based on continued broad risk +diversification and the orientation of our investment portfolio, +our Value at Risk was nevertheless clearly below the Value +at Risk upper limit defined in our investment guidelines. It +amounted to 1.0% (0.8%) as at the end of the reporting period. +Value at Risk¹ for the investment portfolio of the Hannover Re Group +in % +M64 +1.5 +Q4 2015 +1.2 +0.6 +Q1 2015 +1 +88 +Q2 2015 +VaR upper limit according to Hannover Re's investment guidelines: 2.5% +0.9 +Warning level 3 +Q3 2015 +Q2 2015 +Warning level 2 +87 +Utilisation of the trigger system +in % +160 +140 +120 +100 +80 +60 +40 +40 +Q1 2015 +- Utilisation by Hannover Re +--- +Warning level 1 +Q4 2015 +2,683.3 +874.7 +12.9 +Retrocession gives rise to claims that we hold against our +retrocessionaires. These reinsurance recoverables - i. e. the +reinsurance recoverables on unpaid claims - amounted to +EUR 1,395.3 million (EUR 1,376.4 million) as at the balance +sheet date. +The following chart shows the development of our reinsur- +ance recoverables - split by rating quality - due from our +retrocessionaires. +Reinsurance recoverables as at the balance sheet date M68 +in EUR million +2,000 +1,500 +1,000 +The average default rate over the past four years was 0.4%. +500 +1,551 +-98 +1,538 +117 +1,404 +1,376 +0 +1,395 +In terms of the Hannover Re Group's major companies, +EUR 236.4 million (6.4%) of our accounts receivable from +reinsurance business totalling EUR 3,665.9 million were +older than 90 days as at the balance sheet date. +• +84.2 +83.9 +87.7 +89.3 +91.0 +Hannover Re | Annual Report 2015 +41.7% of our recoverables from reinsurance business are +secured by deposits or letters of credit. What is more, for +the majority of our retrocessionaires we also function as +reinsurer, meaning that in most cases recoverables can +potentially be set off against our own liabilities. +91 +Alongside traditional retrocessions in property and casualty +reinsurance we also transfer risks to the capital market. +Counterparty default risks are also relevant to our investments +and in life and health reinsurance because we prefinance acqui- +sition costs for our ceding companies. Our clients, retroces- +sionaires and broker relationships as well as our investments +are therefore carefully evaluated and limited in light of credit +considerations and are constantly monitored and controlled +within the scope of our system of limits and thresholds. +The key ratios for managing the counterparty default risk are +as follows: +• +88.5% of our retrocessionaires have an investment grade +rating ("AAA" to "BBB"). +• 88.3% are rated "A" or better. +Combined management report +91.3 +84 +101 +553 +581 +2011 +2012 +2013 +2014 +601 +2015 +A +